Grants+&+Loans

toc Higher Education: Shift from Grants to Loans

=**__History of Financial Aid__**=

The Morrill Act of 1862 strengthened the budding network of state universities by granting public lands (or the equivalent in scrip) to every state for "the endowment … and maintenance of at least one college where the leading object shall be … to teach such branches of learning as are related to agriculture and the mechanic arts … in order to promote the … education of the industrial classes." By 1890 at least twenty new public institutions had been established under the act, and another twenty institutions had expanded or had been placed under public control. The Second Morrill Act of 1890 provided additional annual grants to certain fields of practical instruction but not to the other scientific and classical studies that the 1862 act had embraced.

Gradually, between the Civil War and World War I the principles that continue to govern many federal programs developed: (1) the annual subvention of designated kinds of education and research;(2) the retention by the federal government of the authority to review proposed plans before committing funds, to place conditions on their use, and to audit expenditures; and (3) the encouragement of practical studies and public service activities. The next major expansion in federal programs came during the Great Depression, when federal outlays rose from $21 million in 1930 to $43 million in 1936. This represented an increase of from 4 to 9 percent of institutions' total annual income. In 1937 federal aid to students reached its peak during this era, when 139,000 students (11% of all students) received an average of $12 per month for undergraduates and $20 per month for graduate students as part of the National Youth Administration's work-study program.

Federal support for higher education expanded greatly during World War II, increasing to over $300 million in 1944. The bulk of this expansion was due to research spending in support of the war effort, though colleges and universities also supported the military by providing training courses to over 315,000 army and navy trainees. Although military research slowed down with the close of World War II, the Servicemen's Readjustment Act of 1944 (more commonly known as the G.I. Bill) provided a new revenue stream for colleges and universities. In 1948 the federal government supported more than 1 million veterans in college, with payments for tuition totaling approximately $365 million, and another $1.3 billion provided to the veterans themselves for subsistence costs. As returning G.I.'s completed their postsecondary education and reentered the workforce, federal support for higher education began to decline. After peaking at $1.9 billion in 1949 (including subsistence funds for veterans), federal support declined and did not reach this level again until 1963.

The late 1950s saw the creation of the first generally available student loan program through the passage of the National Defense Education Act in 1958. This legislation, passed in response to the launching of the Sputnik satellite by the Soviet Union, sought to promote access to higher education as a means toward increasing the technological capabilities of the United States. Now called Perkins Loans, these loans were funded by providing capital directly to colleges, which in turn lent the money to students at highly subsidized interest rates. This era also saw a resurgence in federal support for research, particularly military research to support the cold war efforts of the nation.

The next major milestone in federal support for higher education was the passage of the Higher Education Act of 1965. Title IV of this legislation created the student grant and loan programs that still provided the foundation of financial aid support for students at the beginning of the twenty-first century. Provision of this support was based on the financial need of the students and their families; the aid–both grants and loans–was targeted at the nation's neediest students. In addition to the broad-based student aid programs, the Higher Education Act also provided direct funding for college libraries, historically black colleges and universities, and a number of smaller, specialized programs. The Higher Education Act has undergone reauthorization approximately every five years since its initial passage. With every reauthorization has come changes to how financial aid is provided to students and institutional support to colleges and universities.

Federal support for research has also grown since 1965. According to the National Center for Education Statistics, research support provided to educational institutions (the great majority of which goes to postsecondary institutions) has grown from $1.8 billion in 1965 to $21 billion in fiscal year 2000.

=**__The Pell Grant__**=

http://www2.ed.gov/programs/fpg/index.html

The Pell Grant is named after Former U.S. Senator Claiborne Pell and was originally known as the Basic Educational Opportunity Grant program. Grants, which do not require repayment, are awarded based on a "financial need" formula determined by the U.S. Congress using criteria submitted through the Free Application for Federal Student Aid (FAFSA). The Pell Grant is covered by legislation titled the Higher Education Act of 1965, Title IV, Part A, Subpart 1; 20 U.S.C. 1070a.

Since the Pell Grants are targeted toward students from poor families, receipt of them is often used by researchers as a proxy for low-income student attendance and to indicate the economic diversity of the student body

Federal budget legislation passed in early 2006 cut the federal financial aid budget by $12.5 billion. While the maximum Pell Grant legislative limit was raised to $5,800 through 2011, maximum Pell Grant awards were not funded at this level. The maximum award available to students was frozen at $4,050 since 2003-04. For 2006-07, the maximum Pell Grant available to students was $4,050. For the award year of 2007-2008 the maximum Pell Grant award was $4,310. The maximum award for the 2008-09 award year (July 1, 2008 to June 30, 2009) is $4,731. For 2009-2010, the maximum is $5,350, with an added option for receiving an additional disbursement ($2,675) in the summer. The maximum award for the 2010-2011 award year will be $5,550, and tie future increases in the Pell Grant maximum value to annual increases in the consumer price index. Due to rapid increases in tuition and fees, Pell Grants do not cover as many credit hours as they used to. Twenty years ago, a grant covered 60% of a student's cost of attendance while in 2006 the maximum grant covered about 31% of the cost of attendance. media type="youtube" key="cWW6J8h1s5M" height="385" width="480" align="center"

=**__Shift from Grants to Loans__**=

Since the passage of the Higher Education Act of 1965, financial aid for students has been central to federal support for postsecondary education in the nation. In fiscal year 2000 the federal government provided $47.7 billion in financial aid to college students at both the undergraduate and graduate levels, a sum that represented 70 percent of all aid available that year. Just over half of this amount ($24.2 billion) was in the form of private loans guaranteed and subsidized by the federal government; the remaining amount was in the form of grants, work-study, and loan capital provided directly by the federal government. Federal funds for student aid more than doubled in constant dollars between 1975 and 2000, far outpacing the growth in enrollments of 28 percent during the same period.

The Higher Education Act has as one of its goals the equalization of educational opportunity for all students in the United States, seeking to remedy "the appalling frequency with which a student is presently forced to forego the opportunity of postsecondary education because of inability to meet the costs" (Mumper, p. 78). The provision of aid under Title IV of the act has been made almost exclusively based on the financial need of the student and his or her family. In the early years, the emphasis was on meeting the college access needs of poor students through the use of grants. When first fully funded in fiscal year 1975, Pell Grants, the foundation grant program, provided more than 80 percent of the cost of attendance (tuition, room, board, books, and other expenses) at a typical public, four-year institution. Loans were available for students who wanted to attend a more expensive institution.

Over the ensuing twenty-five years, the Pell Grant program did not keep pace with the rise in college costs. By fiscal year 2000 the maximum Pell Grant provided only 40 percent of the cost of attendance at a public four-year institution. While total Pell Grant spending had grown 691 percent over the preceding twenty-five years, federal loan volume had increased 2000 percent over the same period, thus shifting the foundation of the Title IV programs from grants to loans. The loan programs, which like Pell Grants had initially been targeted at students from financially needy families, were opened up to all students in 1978. While Congress and the Reagan administration rescinded this change three years later, the income limits in the loan programs (and the limits on the amount of loans that could be taken out) were liberalized again in the 1992 amendments to the Higher Education Act.

Another important milestone in federal funding for higher education students was the passage of the Taxpayer Relief Act of 1997. This legislation, which created the Hope and Lifetime Learning tax credits for college tuition, was initially estimated to cost the government $40 billion in foregone tax revenue in its first five years, or slightly more than the estimate for Pell Grant spending during that period. Unlike Pell Grants, which are targeted at the nation's neediest students (those from families making less than $45,000 per year in 2000), the tax credits were made available to families with incomes of up to $100,000. The structure of the tax legislation helped shift even more federal resources away from the neediest college students and toward middle-and upper-income students.

The changes in the provision of federal support for college students since the passage of the Higher Education Act in 1965 can best be characterized as a shift away from meeting the college access needs of poor students to subsidizing college affordability for students from wealthier families. While the Pell Grant program continues to receive much attention in Congress and on college campuses, its position as the cornerstone of federal support for postsecondary education has been usurped by the emphasis on the use of loans and tax credits as alternative means for providing federal funding to students and their families.

=**__Enrollment: 1980-2008__**=

The effects of the movement from grants to loans on enrollment has changed over time and is dependent on whether the institution is private or public. Studies indicate that the move from grants to loans that took place during the 1980’s and has prevailed since has had little to no effect on enrollment rates at public institutions of higher education (McPherson & Shapiro, 1991; Singell, 2004). For private institutions, it is a little more complicated. The studies are clear that grants attract students to both public and private institutions, and that enrollment rates increase when grant awards increase (Singell). However, for private institutions, when the grant amount goes down, enrollment does not seem to be affected by the increase in loans. What does make a difference is tuition price—sticker shock will often scare away students when the expected grant award is small. Tuition prices play more of a roll in whether or not a student would enroll at a particular school, regardless of the type of aid package awarded (Supiano, 2008). However, because of the credit crisis that has occurred in the past decade due to the economic downturn, financial aid awards—and how much of those awards include loans—are having a greater impact on whether or not a student decides to enroll.

=**__Retention__**=

While the increase of student loans over the past 20 years has not seemed to effect enrollment, there has been a clear decrease in the retention of students that utilize student loans, particularly those students that are low-income (Basken, 2008b).

=**__Enrollment: Post-Economic Downturn__**=

Overall, enrollment in institutions of higher education has increased because of the economic downturn, especially for community colleges, which offer low tuition and require students to take out less in student loans. Private colleges nationwide have experienced slight changes in enrollment as a result of the economy. In a survey in October 2008 conducted by the National Association of Independent Colleges and Universities, of the 500 private institutions that responded, three-quarters of the colleges reported an increased demand for student aid, but 67 percent saw no negative impact on their enrollment (Supiano, 2008). Eighteen percent reported fewer returning students than expected, and 19 percent had a smaller freshman class than expected (Supiano). For private institutions, enrollment numbers remain strong, but the demographics of the student body is changing in light of the reliance on student loans combined with the economic downturn. Private institutions are recruiting more affluent students who can afford the tuition, which means that a private education is becoming far less attainable for low income students who are less likely to take on the high amount of loan debt necessary for private education without grants (Basken, 2008a).

=**__Shift from grants to loans: FACT OR FICTION__**=

-While for most higher education institutions and students the growing realization of having to incur debt to finance a higher education is a reality, there are those who argue that loans have nearly always been the emphasis of financial aid programs and policy with the exception of the 1970’s “golden era” of federal student aid policy. To better understand this statement, we turn to an outline of the federal presence in higher education funding and student financial aid since the 1880’s.

http://books.google.com/books?id=859znEJfLaAC&pg=PA40&lpg=PA40&dq=shift+from+grants+to+loans+in+higher+education&source=bl&ots=nMfdJ4TyJx&sig=HhrGE42wt9H99WQWVhZH4bre1DI&hl=en&ei=DjbBS8naAcKB8gb37YT9CA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBsQ6AEwAA#v=onepage&q=shift%20from%20grants%20to%20loans%20in%20higher%20education&f=false
 * The above and below stated perspective and outline is adapted from: Public Funding of Higher Education: Changing Contexts and New Rationales By Edward P. St. John, Michael D. Parsons. The Johns Hopkins University Press. 2004. (27-53)

-Federal funding for projects started in the 1880’s with the foundation laid in 1862 by the Land Grants. https://www.aplu.org/NetCommunity/Page.aspx?pid=183 -This funded mostly military, science, agriculture, and technology including The Manhattan Project. http://www.fas.org/sgp/crs/misc/RL34645.pdf -In the early 1900’s University of Illinois secured annual state appropriations as a flagship University. -Enrollment-Driven funding began when policy makers had to address the increase birth rate in the 1930’s and the growing cohort of students over the next to decades. http://www.education.com/reference/article/finance-higher-education-overview/?page=2 -The result was “a misleading sense of standardization and security on higher education in the second half of the twentieth century”. (p. 30) -“The GI Bill laid groundwork for increasing access and affordability” through grants but used $5.5 billion of funds (more than was expected) which caused concern for government support. (p. 31) http://www.gibill.va.gov/GI_Bill_Info/history.htm -Trueman Commission report of 1947 helped instill need for generalized long term federal support for students and federal funding finally became available in 1960’s. http://www.ed.uiuc.edu/courses/eol474/sp98/truman.html -As a result the development of the “Federal Grant” university and the “Higher Education Golden Age” 1945-1970. -Early to mid 1970’s governments retreats from funding “big science” by not keeping up with the double-digit rate of inflation. -1972 The creation of the The Basic Educational Opportunity Grant (Pell Grant) http://www.pellinstitute.org/federalgrantprogram.html -Lobbying of student activists groups caused “shift from institutional appropriations to student financial aid programs”. (p. 35) -Financial aid programs “forced colleges to compete for student aid recipients”. Worked for 6-7 years until middle class raised complaints that aid was only for lower-income students. (p. 35) -Guaranteed Loans created to cater to middle-class. -With middle class outnumbering low-income students, loans became the dominant aid programs. http://www.finaid.org/loans/studentloan.phtml -Reduced support and continued inflation were met with tuition hikes. -1980’s began shift in view of Higher Education from mainly a strategic research forum to a “government bargain, national treasure, and a source of international admiration”. (p. 37) -“Absent a coherent, persuasive, and enduring defense for the more expensive choice of emphasizing grants, federal policy makers have allowed loans to become the dominant vehicle of national student-aid policy”. (p. 41)

In 2000-2001, financial aid for undergraduates was split evenly between grants and loans (46 percent each). But since then, loans have become the predominant form of financial aid, accounting for 49 percent of financial aid, with grants accounting for 44 percent. (College Board, October 2004) http://democrats.senate.gov/dpc/dpc-new.cfm?doc_name=fs-109-1-47

The point: Student financial aid available to the masses was not a reality until the early 70s. After 6-7 years of relative success, there was a restructuring to meet middle-class demand and guaranteed loans became the dominant program. This was accompanied by a burst in enrollment, inflation, and a growing national view that everyone has the right to a higher education (access, equity, affordability). To accommodate this tidal wave of demand came the private financial institutions. Never more ready to prey on a fragile union of higher education and public policy, private financial institutions became the primary lenders.

=**__Everything has an upside:__**=

The Health Care and Education Reconciliation Act of 2010 is a reconciliation bill passed by the United States Congress to make changes to the Patient Protection and Affordable Care Act. It was signed into law by President Barack Obama March 30, 2010.The bill also includes the Student Aid and Fiscal Responsibility Act. However, small technical parts of the bill relating to Pell Grants were removed during the reconciliation process. Title II of the reconciliation bill deals with student loan reform. The language is very similar to the Student Aid and Fiscal Responsibility Act that passed the House last year; but with some slight variation. This policy intervention has now “shifted student lending to the governments direct loan program" while still allowing banks to compete for contracts to service the loans with the requirement that they do not outsource. The $87 billion in savings will be used in several ways to alleviate some of the building pressure facing financial aid and higher education. Following is a partial breakdown of how the funds will be allocated: -36 billion to Pell Grants over next 10 years -3.5 billion to college access completion fund -10 billion in grants to community colleges -2.5 billion to minority serving institutions -Expand Perkins loan program from 1 billion to 6 billion per year -Some of funds will go to alleviating the national deficit and to offset health care plan. http://chronicle.com/article/House-Passes-Bill-to-End-Ba/48499/ http://chronicle.com/article/House-Passes-Bill-to-End-Ba/48499/

SAFRA: Student Aid and Fiscal Responsibilities Act is also providing -The Income based repayment plan: a maximum of 10% of discretionary income for monthly payments. -A ten year loan limit for students going into public service. -A twenty year loan limit for students not going into public service. http://www.youtube.com/watch?v=Z1Ug-Ho5EWU

Changes to the Pell Grant: Pell Grant Maximum Award Effective July 1, 2009, the law increases the authorized Pell Grant maximums for eligible students to: • $6,000 for academic year 2009-10 • $6,400 for academic year 2010-11 • $6,800 for academic year 2011-12 • $7,200 for academic year 2012-13 • $7,600 for academic year 2013-14 • $8,000 for academic year 2014-15
 * Taken directly from: http://www.nasfaa.org/redesign/webinarcenter/needanalysisandprogramspecific.pdf

=**__The shift from grants to loans effect on campus and student services:__**= -Primarily, the increase in borrowers has led to a need for knowledge. This means that financial aid officers must educate the consumer (parents and students) about the details and nature of loan programs. Not only do institutions have to provide this information to current and prospective students but also make an effort to shape the community and national perspective on using loans to finance college; hopefully making it the decision to utilize this service significantly less forbidding. -Increase in students use of campus services due to increased personal financial investment. -Increase in students use of campus services due to increased enrollment. -Financial aid offices have had to undergo considerable changes to accommodate the new bill as well as accept the new responsibility of making case judgments based on hardship. This may require a significant increase in operating hours, committee time, and training of officers. -SAFRAs inclusion of a $3.5 billion fund for college access completion will also provide a need for research on retention, student involvement services, financial aid services, residential life, academic student resource centers and, of course, academic advising services in order to compete for the funds. This was created as an incentive to not only enroll but to effectively graduate students.

=**__Effects of Shift on Historically Marginalized Populations__**=

‘We found that access to higher education in the United States is unduly limited by the complex interplay of inadequate preparation, lack of information about college opportunities, and persistent financial barriers’ -At ages 25–29, approximately 34 of every 100 whites obtain bachelor’s degrees, same for 17 of every 100 blacks and just 11 of every 100 Latinos (Orkodashvili, 2009).

-The Advisory Committee on Student Financial Assistance estimated that in the first decade of the new century, financial barriers would keep nearly two million low- and middle-income college qualified high school graduates from attending college (Orkodashvili, 2009).

-Myriad of aid programs incomprehensible to all but a few experts (Tierney & Venegas 2009)

-As a general deterrent, The Free Application for Federal Student Aid ( FAFSA), is sometimes more complicated than the federal tax return (And although a 1040EZ has most of the pertinent tax information, some families don’t make enough to file taxes)

- Low socioeconomic populations often lack informed resources on loans

-Often times, schools in low socioeconomic don’t have the ‘luxury’ of providing post-secondary support or comprehensive guidance for students

-Low socioeconomic students are disproportionately funneled into the community college system

-Student loans perception

-Students opt to avoid debt and not enroll in four year institutions

=**__References__**=

Basken, P. (21 May, 2008). A primer on the student-loan troubles. The Chronicle of Higher Education. Retrieved from http://chronicle.com.ezproxy.lib.ucf.edu/article/A-Primer-on-the-Student-Loa/819/ Basken, P. (13 June, 2008). Private-loan reliance worries colleges. The Chronicle of Higher Education. Retrieved from http://chronicle.com.ezproxy.lib.ucf.edu/article/Private-Loan-Reliance-Worri/27415/

McPherson, M. S., and Shapiro, M. O. (March 1991). Does student aid affect college enrollment? New evidence on a persistent controversy. The American Economic Review, Vol. 81, No. 1 (Mar., 1991), pp. 309-318.

Singell Jr., L. (2004). Come and stay a while: does financial aid effect retention conditioned on enrollment at a large public university?. Economics of Education Review, 23(5), 459-471. doi:10.1016/j.econedurev.2003.10.006.

Supiano, B. (22 October, 2008). Student-loan crunch sets back some private colleges, but most manage. The Chronicle of Higher Education. Retrieved from http://chronicle.com.ezproxy.lib.ucf.edu/article/Student-Loan-Crunch-Sets-Ba/1259/

Orkodashvili, M. (2009). Spellings Commission Report on Affordability and Access to Higher Education: Changing Demographics, Economic Crisis and Investment in Human Capital. Online Submission, Retrieved from ERIC database.

Tierney, W., & Venegas, K. (2009). Finding Money on the Table: Information, Financial Aid, and Access to College. Journal of Higher Education, 80(4), 363-388. Retrieved from ERIC database.